Financial planners often use the analogy of a three legged stool when advising their clients about their plans for a comfortable retirement. Just as a stool with fewer than three legs will not stand, a retirement plan that relies on only one or two elements may not be able to stand the test of time. Creating a sensible retirement plan means constructing your own three legged stool using a combination of traditional pension plans, private investments and government programs.

401(k)s and Other Defined Contribution Plans
Putting this three legged stool together is not as difficult as you might imagine. Chances are you already have at least one or two legs in place, and the government stands ready to provide the third leg of that stool. These days most large private employers offer their workers a 401(k) plan, and workers in the public sector are typically offered their own version of this defined contribution plan.

In addition many employers have begun to automatically enroll new workers in the company 401(k) plan unless they object, making it easier to save and invest for the long term. The power of time and compounding can allow those savings to grow significantly over time, creating a substantial nest egg that can provide an excellent income stream in retirement. And when you factor in the instant tax savings that a 401(k) plan provides, along with any matching funds provided by the employer, investing in such a plan is as close to a no-brainer as it gets in the world of finance.